Research

What a 1099 Gig Really Pays After Taxes

Gig platforms quote a rate, not a wage. Here is a stated $20 an hour walked all the way down to what lands, through self-employment tax and the cost of your own car.

By the Euphoria team · 2026-07-23 · 9 min read

The app says twenty dollars an hour

A wage and a rate are different objects, and gig platforms quote a rate.

When an employer offers $20 an hour, a machine behind the scenes has already handled Social Security, Medicare, federal withholding, unemployment insurance, and workers' compensation before the money reaches you. When a platform offers $20 an hour, none of that has happened, and some of it never will. You are being quoted the gross receipts of a very small business.

That business has one employee. It is you, and you are also the owner, which means you owe both sides of the payroll tax that an employer would otherwise split with you. You also supply the capital equipment, which is usually a car.

• 15.3% the self-employment tax rate, covering both halves of Social Security and Medicare
• 70 cents the IRS standard mileage rate for business driving in tax year 2025
• $11.04 what a stated $20 an hour came to in the example below, after vehicle costs and federal tax

What follows is one example, worked all the way down, for tax year 2025. The person drives 1,500 hours across the year, collects $30,000 in gross receipts, and puts 15,000 business miles on their own car. Every figure is arithmetic you can redo with your own numbers.

Step one: gross receipts are not money you keep

Start with the part almost everybody forgets, because no form ever shows it to you.

Driving for money consumes a car. Fuel and oil are obvious. Tires, brakes, and servicing arrive on a schedule set by mileage rather than by time. Insurance costs more for commercial use. And the largest item is the least visible: the car loses resale value with every mile, which is a real cost that never appears as a transaction.

The tax code recognizes all of this through the standard mileage rate, a single cents-per-mile figure the IRS sets to stand in for the whole cost of operating a vehicle. For tax year 2025 the business rate was 70 cents a mile. You multiply your business miles by the rate, and that is your deduction. No receipts for fuel, no depreciation schedule, no arithmetic about tires.

Notice the 2026 split in that chart. The rate opened the year at 72.5 cents and the IRS revised it upward to 76 cents from 1 July, which means a 2026 return needs your miles separated by half of the year. Mid-year revisions are unusual but not unheard of, and they happen when fuel prices move sharply.

At 70 cents, 15,000 business miles is a $10,500 deduction. Subtract it from $30,000 of receipts and the net profit reported on Schedule C is $19,500.

Two things about that $10,500, and the difference between them is where people go wrong. It is a deduction, so it lowers the income you are taxed on. It is also an estimate of money that genuinely left your life, some as cash at the pump and some as value drained out of your car. The deduction is the tax code's way of admitting the cost exists. Whether your true cost is above or below 70 cents a mile depends on what you drive and how old it is.

A 1099 is not a paycheck with the taxes left off. It is a business with one employee, and you are on both sides of the table.

Step two: the tax nobody withholds

An employee and their employer each pay 7.65 percent of wages toward Social Security and Medicare. The employee sees their half on the pay stub. The employer's half is real money too, it simply never appears in front of the worker.

A self-employed person pays both halves. That combined rate is 15.3 percent, made of 12.4 percent for Social Security and 2.9 percent for Medicare, and the IRS calls it self-employment tax. The Social Security portion stops once your earnings pass an annual cap that changes each year. The Medicare portion never stops.

One wrinkle softens it slightly. The 15.3 percent applies not to your whole net profit but to 92.35 percent of it, which is a rough stand-in for the fact that an employer would have deducted its own share. So the arithmetic runs:

• Net profit: $19,500
• Multiplied by 92.35 percent: $18,008
• Self-employment tax at 15.3 percent: $2,755

That is $2,755 which no one deducted, no one held back, and no one reminded you about. It is the single largest surprise in gig work, and it is why the IRS expects self-employed people to send in estimated payments four times a year rather than once at filing. The 2025 deadlines fell in April, June, September, and the following January, on Form 1040-ES. Skip them and you can owe a penalty for underpayment even if you pay the full amount in April.

Step three: the income tax, which is the smaller one

Here is the result that surprises people who expected the opposite.

Two provisions cut the income tax before it is calculated. You deduct one half of your self-employment tax, $1,378 here, which brings adjusted gross income to $18,122. Then there is the qualified business income deduction, worth up to 20 percent of business profit, but capped at 20 percent of taxable income after the standard deduction. With a 2025 standard deduction of $15,750 for a single filer, taxable income before that step is only $2,372, so the deduction is limited to $474 rather than the $3,624 the headline 20 percent would suggest.

Taxable income lands at about $1,898. In the 10 percent bracket, that is roughly $190 of federal income tax.

Compare the two lines. Self-employment tax: $2,755. Federal income tax: $190. The tax people worry about is fourteen times smaller than the tax they have never heard of.

Running the whole chain: $30,000 of receipts, minus $10,500 of vehicle cost, minus $2,755 of self-employment tax, minus about $190 of income tax, leaves roughly $16,555. Across 1,500 hours that is $11.04 an hour, from a rate quoted at $20.

The same thirty thousand dollars, three ways

Hold gross pay constant at $30,000 and change only the arrangement.

A W-2 employee earning $30,000 pays 7.65 percent in payroll tax and about $1,472 of income tax, keeping roughly $26,233. Their employer pays the matching 7.65 percent, plus federal and state unemployment insurance and workers' compensation premiums, none of which the employee ever sees.

A contractor with no vehicle expense, doing work from a laptop, owes $4,239 of self-employment tax and about $971 of income tax, keeping roughly $24,790. The gap against the employee is almost entirely the employer's missing half of payroll tax.

The driver keeps about $16,555, because the car is doing the work.

What never appears on any form

The example above stops at federal tax, which understates the gap. Several things an employee receives have no line on a 1099.

• The employer's payroll tax share. Already counted above, but worth naming as the cleanest apples-to-apples difference: 7.65 percent of pay.
• Health coverage. Employers that offer a plan typically pay a large share of the premium. A contractor buys individual coverage, where subsidies depend on income and the net cost varies enormously.
• Retirement contributions. An employer match is compensation. Nobody matches a contractor.
• Unemployment insurance. Contractors are generally not covered, so a month with no work is a month with no income and no claim to file.
• Workers' compensation. An employee hurt on the job has a route to medical costs and lost wages. A contractor injured while driving usually does not.
• Paid leave. An employee who takes a sick day is paid. A contractor who takes a sick day is not, so the hourly rate only exists for hours actually worked.

State and local income tax sits on top of all of this, and varies from nothing to a meaningful bite.

The honest other side

Self-employment is not purely worse, and pretending otherwise would be as misleading as the $20 figure.

Business expenses are genuinely deductible, and a driver who tracks mileage carefully is recognizing a cost an employee with a commute simply eats. The deduction for half of self-employment tax and the qualified business income deduction both exist and both help, even when the second one is capped down to very little at low incomes. Retirement accounts available to the self-employed allow far larger contributions than an ordinary workplace plan. And the schedule is yours, which has a value that does not show up in any of this arithmetic.

There is also a moving target here. The qualified business income deduction was created in 2017 with an expiry date, and later legislation changed its status, so its long-run future has been rewritten more than once. Anyone modeling gig income several years out is assuming a rule that Congress has already revisited.

What this changes about the number you accept

The practical move is a conversion habit. When you see a gig rate, divide rather than accept.

For a driving job, subtract the mileage cost first, at whatever rate matches your car, then take off roughly 14 percent of what remains for self-employment tax, then whatever your income tax bracket takes. For non-driving contract work, skip the first step. What survives is the figure that compares to a wage, and it is normally somewhere between half and three quarters of what was advertised.

That ratio is the useful thing to carry. A contract rate has to be meaningfully higher than a wage to be equal, not slightly higher.

Why this matters for you

Nobody is hiding this. Every number above comes from a public IRS page, and the mechanism is the same whether you deliver food for a summer or freelance for a decade. What makes it feel like a trick is that the deductions are invisible until you do them yourself.

So do them yourself. Euphoria's lessons hand you a gross figure and make you walk it down to net, line by line, until converting a quoted rate into a real one is something you can do in your head before you take the shift.